Market meltdown: Good for FX
One global head told me this week that as recently as two years ago FX was regarded as the mat that all the whizzkids in credit and equity derivatives wiped their shoes on as they made their way up. I don’t think that’s the case now.
After listening to countless experts and reading various pieces of research, it seems that the end of the world is nigh. The sense of doom and gloom must be the deepest it’s been for years.
Concerted action from the Fed and other central banks to inject liquidity this week has generated a quasi-conspiracy theory. I received notes from two chartists stating that the Fed acted to stop the S&P 500 breaching a key level on the downside; and I don’t know how many times I heard that the central banks are accepting junk as collateral for their repo tenders when they are not.
All very interesting, but it’s my view that the negativity is over done. Of course, the shake out from the sub-prime crisis is going to take years to settle, but much of the coverage continues to insist that the world’s financial system is on the point of collapse.
Yet, for the moment, FX appears to be immune and business is booming. There are obviously issues in the swaps market, highlighted in the Bank for International Settlement’s latest quarterly review. Longer term, these problems may well impact FX and other assets – after all, a freeze-up in what is essentially a $2 trillion-a-day funding market must create problems.